TX

Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the six-month period ended June 30, 2012, compared to the same period in 2011. Ternium is a global steel manufacturer organized into flat steel, long steel, and other product segments. The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX."

Key Financial Metrics (Six Months Ended June 30, 2012)

Note: Total Borrowings includes current and non-current borrowings. Gross margin for the six months ended June 30, 2012, was approximately 21.9%.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by 2.9% to $4.34 billion, driven primarily by a decline in the flat steel segment (down 4.7%) despite growth in the long steel segment (up 15.5%).
• Profitability Compression: Profit attributable to equity holders fell 32.8% to $270.4 million. This was largely due to a significant decrease in "Other financial income, net" (down $83 million) and a loss in equity earnings from non-consolidated companies.
• Usiminas Acquisition Impact: The company acquired a 22.71% stake in Usiminas in January 2012 for approximately $2.24 billion. This resulted in a $268 million negative adjustment recorded in Other Comprehensive Loss, primarily due to currency translation adjustments on the Brazilian Real-denominated investment.
• Cash Flow Volatility: While operating cash flow improved significantly to $442.7 million (from $54.7 million), investing activities consumed $2.53 billion, primarily due to the Usiminas acquisition. Consequently, cash and cash equivalents dropped by $1.67 billion.
• Accounting Policy Change: Effective January 1, 2012, the company changed the functional currency of its Mexican subsidiaries to the U.S. dollar and adopted IFRS 10, 11, and 12, resulting in the deconsolidation of certain joint ventures.

Outlook, Risks, and Contingencies

• Sidor Nationalization: The company initiated arbitration proceedings against Venezuela on July 20, 2012, regarding the unpaid balance of compensation for the nationalization of Sidor. As of June 30, 2012, $130.3 million remained outstanding. The company has recorded a financial asset of $136.9 million related to this claim.
• Tax Contingency: Mexican tax authorities assessed a deficiency of approximately $302 million (MXN 4.124 billion) related to a 2004 capital reduction. Ternium has appealed and believes an obligation is not probable; no provision was recorded.
• Debt Covenants: The $700 million term loan used to finance the Usiminas acquisition includes standard covenants regarding leverage ratios and minimum cash requirements. There are currently no limitations on dividends or capital expenditures unless covenants are breached.
• Dividends: The company paid dividends of $0.075 per share ($150.4 million total) in May 2012.

Investor Verification Checklist

• Usiminas Valuation: Verify the status of the purchase price allocation and any potential impairment tests for the Usiminas investment, given the $268 million currency translation loss.
• Venezuela Arbitration: Monitor the progress of the arbitration against Venezuela regarding the $130.3 million Sidor receivable and the likelihood of recovery.
• Liquidity Position: Assess the impact of the $1.67 billion cash reduction on the company's ability to fund future capital expenditures and service debt, particularly the new Usiminas facility loan.
• Segment Performance: Analyze the divergence between the declining flat steel segment and the growing long steel segment to understand market demand shifts.
• Functional Currency Impact: Review the financial impact of the functional currency change for Mexican subsidiaries on future earnings volatility.